Mortgage reduction bill fails in Senate
The financial services industry is in trouble over its role in crashing the world economy, but that doesn’t mean its lobbyists have lost all their muscle on Capitol Hill.
Exhibit A: The Senate delivered a stinging rebuff to President Obama and consumer advocates Thursday by rejecting a measure to help homeowners facing foreclosure.
The vote was 51 to 45, with 12 Democrats joining Republicans in opposing the proposal, under which bankruptcy judges could order lenders to reduce the principal on home mortgages.
The proposal, which sailed through the House in March, was a key part of Obama’s plan to reduce the tide of home foreclosures.
Its defeat in the Senate marked a turnaround for the Democratic supporters of the bill, who had hoped that the party’s new majority would boost its chances for passage.
Instead, Democratic leaders were furious to see bankers lobbying against consumer protection measures after Congress had approved enormous sums to shore up the financial services industry.
“I am sick and tired of being asked to give billions to these banks,” said Senate Democratic Whip Dick Durbin (D-Ill.), who threatened to oppose any further industry bailouts. “If they have no sympathy for homeowners facing foreclosure, I don’t have any sympathy for them.”
Travis Plunkett, legislative director of the Consumer Federation of America, attributed bankers’ continuing clout to the fact that they are major financial players in campaign contributions -- to Democrats as well as Republicans.
According to the Center for Responsive Politics, commercial bank employees donated $22.5 million to congressional candidates -- more than half of it to Democrats.
The banking lobby will face another -- possibly tougher -- test next week when the Senate considers legislation to impose new consumer protections on credit card companies -- a measure with broader populist appeal. The House passed that bill Thursday by an overwhelming 357-70 vote; 105 Republicans voted for the bill, which would give consumers safeguards against unexpected interest rate increases, hidden fees and other alleged abuses.
Consumer advocates hope the strong House vote will give the issue more momentum in the Senate. But the Senate bill is more stringent and may draw even stiffer banking opposition.
Bank lobbyists welcomed their hard-fought victory on the mortgage measure.
“A deluge of 12,450 letters from ABA members, in addition to numerous phone calls, personal e-mails and correspondence from Direct Contact Bankers and the state associations, paid big dividends today,” the American Bankers Assn. said on its website.
The success came after a nationwide lobbying effort by the ABA and others, including a video appeal from the chairman of the Mortgage Bankers Assn. urging members to come to Washington to lobby on the Senate vote.
“There’s no question that our industry has lost a substantial part of its credibility and its reputation in the eyes of legislators and regulators,” David G. Kittle, chairman of the association, said in the video.
Indeed, a recent Gallup Poll found that only 5% of respondents expressed a “great deal” of confidence in U.S. banks -- the lowest since the poll started asking the question in 1979.
The vote on the mortgage measure, which was offered as an amendment to a broader bill designed to ease eligibility for federal housing aid, was a sobering political reminder to Democrats who were still celebrating GOP Sen. Arlen Specter’s party switch: Their bigger majority is still no glide path to legislative success.
On many issues -- especially heavily lobbied ones and those that have disparate regional effects -- Democrats may defect in sufficient numbers to tip the balance against the president and party leaders.
The home loan measure, sponsored by Durbin, would allow judges to reduce, or “cram down,” the principal owed on an existing mortgage for a primary residence. It would remove an oddity in current bankruptcy law:
Judges handling bankruptcy cases can already reduce the principal -- and thus the size of the payments -- on a vacation home, car or boat, but not on a mortgage for a primary residence. The bill would have changed that. Sponsors hoped that would give banks an incentive to modify loans to give relief to borrowers facing foreclosure.
The proposal, which previously had been defeated in Congress, was thought to have much better prospects this year because it was backed by Obama as part of his plan to help distressed homeowners.
With the collapse of the housing market forcing mortgage holders into bankruptcy, and loan defaults climbing 81% last year, the bill had won wider support, even gaining the backing of some in the construction and mortgage lending businesses.
The president did not personally lobby for the bill, however, and efforts to reach a compromise stalled in the face of unyielding opposition from bankers. They argued that changing the law would add risk and uncertainty to mortgages and encourage unnecessary bankruptcies.
Those were some of the arguments that held sway with Sen. Ben Nelson (D-Neb.), one of the dozen Democrats who voted against the bill.
“I’m very concerned about delegating that authority to judges,” Nelson said. “I don’t know of anyone back home who supports it.”
The Democratic opponents of the bankruptcy measure included several, like Nelson, who come from Republican-leaning states.
Others represented states with a big bank presence, including Sen. Tom Carper (D-Del.), who argued that the measure was too broad and could encourage too many borrowers to file for bankruptcy protection.
Durbin is not predicting that the measure passed by the House will be revived when House and Senate negotiators meet to iron out differences between their two bills.
Times staff writer Jim Puzzanghera in Washington contributed to this report.